Entrepreneurs

5 secrets of success from 'Shark Tank' investor Daymond John

Daymond John started with $40 worth of fabric that he turned into hats. He added a whole lot of hustle, a slew of mistakes, grit, and determination, and he turned two twenties into a $6 billion urban street-wear brand, FUBU, and a position as an investor on the hit ABC show "Shark Tank."

Along the way, John also lost a lot. He was rejected a lot. He spent a lot of time at the bottom of the barrel looking up, hoping to find a way out, wondering what should be his next step.

To succeed, John channeled what he now calls "the power of broke." He's written a book with that title and today he preaches that fortitude is born when you're forced up against the wall.

Daymond John
By Greg Doherty | Getty Images
Daymond John

John has distilled the key takeaways from his journey down to five primary lessons, the first letters of which spell out the acronym "SHARK," and he shared them at Forefront, the first large-scale live event of the I Will Teach You to Be Rich community in New York City.

Here are the five secret ingredients for success, according to the People's Shark.

Set a goal. You can’t achieve a goal you can’t see.

John's father left when John was ten years old. John watched his mother work multiple jobs to make ends meet and decided he too should make money and contribute to the household expenses. He got odd jobs handing out fliers and working at a local mall in Queens, where he grew up.

As a teenager, John tried throwing a massive party on a boat. He leveraged every credit card and called in every I.O.U. to scrape together $20,000. The event was a flop: He ended up losing everything.

"I had no dreams or aspirations at that time," says John, until "this music came out of the Bronx that slowly made it's way into Queens." It was called hip-hop. And it was the first time John felt passionate about anything. "I wanted to be part of hip-hop. I just didn't know how to be part of hip-hop."

"It hit me. ... I was going to live, die, and prosper in the world of hip-hop." -Daymond John, founder of FUBU and investor on 'Shark Tank'

John couldn't sing. He couldn't dance either.

But John was intrigued by the way hip-hop impresario Russell Simmons, one of the only models of entrepreneurship John was exposed to in his community, made money selling music.

One night, as John was listening to a hip-hop concert from the wings, he looked out over the audience and realized that everyone in the audience was dressed in a kind of unofficial uniform.

John realized he had discovered his way in. He would dress the hip-hop community.

"Prior to that, my life was black and white. I didn't know what I wanted to do in life but it was that given moment, that given second that my life changed from black and white into technicolor," says John. "It hit me. ... I was going to live, die, and prosper in the world of hip-hop."

That moment of realization lead John to his first Shark Point: You have to set a goal. If you don't know where you are going, you will never get there.

When John realized what his goal was, he became focused on achieving it. He called his mom and said, "'I want to make a uniform for this culture. They are rapping, they are singing, but who is going to dress them all? I am going to dress them all!'"

Homework. You have to do your homework.

John's first foray into apparel was making and selling hats. His mom helped him turn $40 worth of fabric into $800 worth of hat sales. Elated from making his first cash profit, John crashed his car because he was counting his winnings on the way back home.

He caused exactly $800 worth of damage in that accident. His first taste of success was gone as fast as it arrived. But he didn't forget the feeling.

John made T-shirts emblazoned with his FUBU logo. The letters stand for, "For Us, By Us," but he also chose that acronym because, when each letter is pronounced, it sounds like an individualistic rallying cry: "Eff you! Be you!"

He took ten shirts to various hip-hop music video shoots. He sat outside the house of LL Cool J, a rapper who lived in the same neighborhood that John grew up in, and eventually convinced the reticent performer to take a photo wearing a FUBU shirt.

John took that photo and his ten prototypes to a conference for menswear products in Las Vegas where, he had read, the fashion community gathers twice a year to see new gear and place orders.

Broke, living on the tips he had accrued as a waiter at Red Lobster, John flew standby and snuck into the trade show without paying the admission fee. There he secured $300,000 worth of orders.

Success made him giddy. "I am rich! I am rich! I am moving to Tahiti!" he told himself. Somewhere on the plane ride back from Vegas, though, John sobered up: "Then it hit me. I gotta make $300,000 worth of clothes."

Without the working capital to produce his first run of FUBU clothes, John applied for bank loans. He was rejected no fewer than 27 times. His mom took out an equity line on their house in Hollis, Queens, and John took the resulting $100,000 to set up a makeshift factory.

The six-figure lump sum quickly dwindled to $500 as John got bought sewing machines and raw materials. Still, John couldn't finish enough T-shirts to fulfill his order requests.

In a last-ditch effort to get funding, John's mom took out an ad in the local newspaper and the textile division of the technology behemoth Samsung called John. They offered him financing on the condition that he turn $5 million of sales in the next three years. "We had no options. I was about to lose the house. I was out of all my money, but I knew I wasn't going to sell $5 million worth of clothes in three years," he says. Thanks to his obsessive research into demand, he was confident he could do much better.

"Life is a series of pitches. You are always pitching." -Daymond John, founder of FUBU and investor on 'Shark Tank'

And, indeed, he did. John sold $30 million of gear in the first three months.

The early days of launching FUBU taught John the importance of doing your homework. When he hadn't researched the costs to get a clothing production line up and running, he nearly killed his business and lost his mother's house. But once he had run his financial estimates of what demand would be, John knew he could take the Samsung financing deal without blinking.

Helpfully, the Gap then ran an ad featuring LL Cool J wearing a FUBU hat. "The Gap didn't do their homework," says John, "and ended up spending $30 million airing a FUBU ad."

The combination of the Samsung financing and the Gap ad sent FUBU sales through the roof. While everyone on the Gap marketing team was fired for letting the FUBU hat slip through, the commercial was so successful that Gap did another $60 million campaign with John.

"We had everything," says John.

Amor. You have to love what you do.

John's ascent was only possible because of his deep passion for his work. "I loved what I was doing," he says. John says that every single successful person has that one trait in common: They love what they do.

Remember, you are the brand. Summarize yourself in two-to-five words.

John started doing more television appearances, talking about his entrepreneurial rise from slinging T-shirts on the streets in Queens to growing and leading a $6 billion brand. And that's how television producer Mark Burnett learned about John. Burnett, who launched both "Survivor" and "The Apprentice," was impressed by John's poise and presence and invited John to be a participant on what would become the hit ABC show, "Shark Tank."

In his time at "Shark Tank," John learned that investors don't invest in companies, they invest in people.

And, in the digital age, John says that having a strong personal brand is more important now than ever.

The Shark Tank investors.
By Eric McCandless | Getty Images
The Shark Tank investors.

You should always have ready a two-to-five word description of who you are and what you are doing with your life. "If you don't know what your two-to-five words are, then you walk in a room and you leave it up to us to interpret," says John. The thought process should always be, "Are you populating what your two-to-five words are?"

For John, at this point in his life, the words are, "I am on a quest."

Also, your two-to-five words aren't reserved for when you are standing in front of a team of venture capitalists. You should be consistently on brand whether you are soliciting funding, posting on Facebook, or meeting new people. "Life is a series of pitches. You are always pitching," says John.

Keep swimming. Don't give up.

John's final Shark Point he takes from Dory in Disney's hit film Finding Nemo.

"You either think like a shark or you don't. If you think that anything can hold you back, well, I am dyslexic," he says, listing various obstacles, both real and perceived, to his success: "I am short. I got left back in school. I didn't go to college. I don't know anybody with a famous last name. I am not a relic of anybody with a famous last name. I could call Elton John and tell him I am his son, but he probably wouldn't believe me.

"I can't sing rap, I can't shoot a basketball, can't play basketball, or whatever you do with a basketball."

Yet, says John, "I am here with you." Partly because he has been persistent.

"You either think like a shark or you don't." -Daymond John, founder of FUBU and investor on 'Shark Tank'

The reason John was successful in launching FUBU is because he continually found solutions in moments where it would have been more reasonable to give up.

"I have failed way more than I have succeeded," says John.

And now, with plenty of money and fame, the People's Shark says he still finds new motivations. His most recent one is his new baby girl.

"Life never stops because mentors are sometimes those beautiful new people in your life that inspire you and make you want to keep swimming and keep trying," he says. "You must keep swimming."

Disclosure: CNBC owns the exclusive off-network cable rights to "Shark Tank."